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TW closer to cutting AOL ties

Film arm turns in solid performance amid weaker first-quarter results

Time Warner took another step toward an expected spinoff of AOL as it reported mostly weaker first-quarter results Wednesday while touting the performance of its core content businesses.

Its film unit reported a profit that provided a positive surprise for Wall Street observers.

TW said in a regulatory filing that it plans to start a process to spin off all or part of its AOL unit. The board hasn't made a decision, and the plan could change based on market conditions or a better strategic alternative, the company said.

Chairman and CEO Jeffrey Bewkes said during a conference call that TW plans to announce a decision on AOL's structure "very soon." He added that the company and new AOL chairman and CEO Tim Armstrong also will discuss AOL's latest business strategies in the near future.

TW also disclosed it has notified Google that it plans to buy back 5% of AOL held by the online bellwether while staying open to alternative moves. An independent valuation is expected to be completed during the coming months.

In its first earnings report since spinning off Time Warner Cable, the conglomerate posted a first-quarter profit of $661 million, compared with a year-ago profit of $771 million. Adjusted operating income before depreciation and amortization fell 7% to $1.6 billion. Revenue also fell 7%, to $6.9 billion.

TW reiterated its forecast for a 2009 adjusted profit for its remaining content businesses of $1.98 a share from continuing operations.

Quarterly operating profit at the film arm surprised with a 17% increase after many analysts predicted a decline. Film unit revenue declined 7% on lower DVD sales, but prints and advertising expenses fell, overhead costs were lower and TV licensing fees were higher. The quarter included the theatricals "Gran Torino," "The Curious Case of Benjamin Button" and "Watchmen."

Wunderlich Securities analyst Martin Pyykkonen warned that investors shouldn't expect similarly solid results from too many film units at other media biggies. "We expect to see that the Warner Bros. studio outperformed its competition in the quarter, especially in terms of DVD sales," he said. (partialdiff)